AINS 101: Practice Questions
Which one of the following best describes the concept of pooling? - correct answer The concept
of pooling is that insureds share the cost of each other's losses
As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However,
her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash
flows. Which one of the following examples best illustrates Mehmet's point? - correct answer
When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it
Shelton Industries experienced a fire in its manufacturing plant. Several employees suffered
burns and smoke inhalation injuries as they tried to escape the building. Which one of Shelton
Industries' commercial property-casualty policies would pay for the employees' injuries and
illnesses? - correct answer Workers compensation insurance
Coverage for money and other business property from various causes of loss such as burglary,
robbery, theft, and employee dishonesty typically is provided by - correct answer Commercial
crime insurance
All of the following are types of private insurers, EXCEPT: - correct answer State workers
compensation funds
The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF)
that provides coverage for drivers who are unable to obtain coverage from private insurers.
Which one of the following is the best rationale for the MAIF program? - correct answer Auto
insurance is compulsory, and the program makes it possible for all drivers to have reasonably
priced insurance
ABC Company experienced a dramatic ideological shift in corporate policies after a national
election. This is an example of which one of the following quadrants of risk? - correct answer
Strategic risk
,AINS 101: Practice Questions
Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the bank
that held the mortgage. He is hoping to do some renovation and repair work on the house, and
then sell it for a quick profit. Which one of the following types of risk is this for Jimmy? - correct
answer Speculative risk
Carlos is new to the insurance business and is learning about insurance regulation and what he,
now working with Grady Insurance, will need to be aware of regarding the subject of
compliance. Which one of the following will Carlos find is accurate as he better understands
why insurance is regulated? - correct answer Insurance regulation protects customers by
guaranteeing insurance is available and accessible to everyone who needs it.
What term refers to the ability of an insurer to meet its obligations as they become due? -
correct answer Solvency
One of the reasons for insurance regulation is to prevent destructive competition. In which one
of the following scenarios would destructive competition be exhibited? - correct answer East
Insurance comes up with a new rate structure allowing "preferred customers" discounted
policies when they continually renew year after year; East eventually loses needed revenue but
is rewarded by its competitors leaving the market
All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT: -
correct answer Policyholders' surplus
Which one of the following is part of written premiums? - correct answer Unearned premiums
An insurer's balance sheet can best be described as a - correct answer Snapshot of its financial
position.
The financial report for Hometown Insurer contains the following information:
- Earned premiums $4,000,000
, AINS 101: Practice Questions
- Written premiums $5,000,000
- Net investment income $1,000,000
- Incurred Losses $3,000,000
- Incurred underwriting expense $2,000,000
What is Hometown Insurer's expense ratio? - correct answer 40%
The financial report for LMN Insurance contains the following information:
Earned premiums $8,000,000Written premiums $10,000,000Incurred losses $6,000,000Incurred
underwriting expenses $4,000,000
What is LMN Insurance's expense ratio? - correct answer 40%
Expense Ratio = Incurred underwriting expenses ÷ Written premiums: $4 million ÷ $10 million
= .40 (40%)
Spencer Insurance Associates is an independent agency selling primarily homeowners policies.
This agency - correct answer Is free to work with as many different insurers as it wants.
As it continues to grow, Anchoy Insurance is examining other distribution channels to more
effectively market its products. Through this experience, which of one the following will Anchoy
most likely learn? - correct answer Anchoy can use group marketing to target large numbers of
recent local college graduates.
The key to the direct writer marketing system is that - correct answer The insurer is using its
own employees as producers.
Insuring individuals with a high probability of loss at a cost lower than the insurer would
normally charge for that risk because it wasn't aware of the actual risk involved is known as -
correct answer Adverse selection.
Which one of the following best describes the concept of pooling? - correct answer The concept
of pooling is that insureds share the cost of each other's losses
As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However,
her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash
flows. Which one of the following examples best illustrates Mehmet's point? - correct answer
When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it
Shelton Industries experienced a fire in its manufacturing plant. Several employees suffered
burns and smoke inhalation injuries as they tried to escape the building. Which one of Shelton
Industries' commercial property-casualty policies would pay for the employees' injuries and
illnesses? - correct answer Workers compensation insurance
Coverage for money and other business property from various causes of loss such as burglary,
robbery, theft, and employee dishonesty typically is provided by - correct answer Commercial
crime insurance
All of the following are types of private insurers, EXCEPT: - correct answer State workers
compensation funds
The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF)
that provides coverage for drivers who are unable to obtain coverage from private insurers.
Which one of the following is the best rationale for the MAIF program? - correct answer Auto
insurance is compulsory, and the program makes it possible for all drivers to have reasonably
priced insurance
ABC Company experienced a dramatic ideological shift in corporate policies after a national
election. This is an example of which one of the following quadrants of risk? - correct answer
Strategic risk
,AINS 101: Practice Questions
Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the bank
that held the mortgage. He is hoping to do some renovation and repair work on the house, and
then sell it for a quick profit. Which one of the following types of risk is this for Jimmy? - correct
answer Speculative risk
Carlos is new to the insurance business and is learning about insurance regulation and what he,
now working with Grady Insurance, will need to be aware of regarding the subject of
compliance. Which one of the following will Carlos find is accurate as he better understands
why insurance is regulated? - correct answer Insurance regulation protects customers by
guaranteeing insurance is available and accessible to everyone who needs it.
What term refers to the ability of an insurer to meet its obligations as they become due? -
correct answer Solvency
One of the reasons for insurance regulation is to prevent destructive competition. In which one
of the following scenarios would destructive competition be exhibited? - correct answer East
Insurance comes up with a new rate structure allowing "preferred customers" discounted
policies when they continually renew year after year; East eventually loses needed revenue but
is rewarded by its competitors leaving the market
All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT: -
correct answer Policyholders' surplus
Which one of the following is part of written premiums? - correct answer Unearned premiums
An insurer's balance sheet can best be described as a - correct answer Snapshot of its financial
position.
The financial report for Hometown Insurer contains the following information:
- Earned premiums $4,000,000
, AINS 101: Practice Questions
- Written premiums $5,000,000
- Net investment income $1,000,000
- Incurred Losses $3,000,000
- Incurred underwriting expense $2,000,000
What is Hometown Insurer's expense ratio? - correct answer 40%
The financial report for LMN Insurance contains the following information:
Earned premiums $8,000,000Written premiums $10,000,000Incurred losses $6,000,000Incurred
underwriting expenses $4,000,000
What is LMN Insurance's expense ratio? - correct answer 40%
Expense Ratio = Incurred underwriting expenses ÷ Written premiums: $4 million ÷ $10 million
= .40 (40%)
Spencer Insurance Associates is an independent agency selling primarily homeowners policies.
This agency - correct answer Is free to work with as many different insurers as it wants.
As it continues to grow, Anchoy Insurance is examining other distribution channels to more
effectively market its products. Through this experience, which of one the following will Anchoy
most likely learn? - correct answer Anchoy can use group marketing to target large numbers of
recent local college graduates.
The key to the direct writer marketing system is that - correct answer The insurer is using its
own employees as producers.
Insuring individuals with a high probability of loss at a cost lower than the insurer would
normally charge for that risk because it wasn't aware of the actual risk involved is known as -
correct answer Adverse selection.
